Variable Rate Mortgages

What is a Variable Rate Mortgage?

A standard variable rate mortgage (SVR) is one that is on the most basic of rates from a bank or building society and is not discounted or fixed at all. The SVR is in effect the standard mortgage rate offered and most other products are quoted as discounts against this rate. Perhaps most people are now on this rate because they allowed either their fixed rate or tracker rates to lapse because interest rates are now so low.

The Skipton Building Society recently raised their SVR from 3.5% to 4.95% after it had pledged not to have their SVR at more than 3% above the Bank of England base rate.

And as you can see from the table many are at this level already. Once a decision has been reached to increase the rate, then your mortage will increase perhaps a month after it has been announced (although this may be a shorter period of time and it's down to the lender on when the changes occur).

Advantages and Disadvantages of a SVR Mortgage

The main advantage if you can call it that is that the rate is published and variable as the BOE rate moves up and down. There are however some big disadvantages and market conditions have dictated that not all standard variable rates are the same and some building societies and banks have dramatically increased their SVRs recently to increase the rates.

The actual rate can be anything a lender wants it to be and although it generally follows the Bank of England rate it is not a fixed percentage above this. As can be seen from the table below there is wide variable between standard rates amongst the main lenders in the UK.

Once most fixed or tracker rates have finished they will automatically be placed onto the SVR so a good deal may not be a great deal once the fixed term has been completed. Additionally if you are on a SVR the lenders can changed their rate at any time they wish and your mortgage will rise and fall as they see fit.

What Else For Variable Rate Morgages?

At present whilst interest rates are low and where many people have left their mortgage lapse to a low standard variable rate the costs are acceptable. Over time interest rates are likely to rise and if you can get a good long term fixed rate then now may be the time to secure such a rate.

If you're a first time buyer, moving house or have to remortgage for whatever reason then a SVR may be the way to go if this is all you can get but with higher loan to value (LTV) percentages it's always best to shop around. Also be aware to take account of any arrangement fees that lenders add on because these can make the comparable interest rate very high if you are paying such fees every two years or so.